August 27, 2021

Market Confidence Is Recovering, GDP Data Is The Catalyst!

 The United States (U.S.) economy is reported to grow faster than expected with gross domestic product (GDP) growing above pre -pandemic readings. This is because it is driven by the large-scale fiscal stimulus package and the more widespread Covid-19 vaccination.

GDP for the second quarter grew by 6.6% at a year -on -year rate as reported by the Commerce Department on Thursday. This reading is a revised result of the previously reported 6.5% figure. However, the latest reading is still below expectations which target growth of 6.7%.

The economy grew at a rate of 6.3% in the first quarter, and has been able to cope with losses due to the recession.

The reassessment of the second quarter GDP reading reflects a much stronger consumer spending rate than initially anticipated. At the same time, the Fed has maintained a loose monetary policy, kept interest rates low and raised stock market prices.

Consumer spending, which accounts for more than two -thirds of the U.S. economy, is also driven by increased vaccinations that drive demand for services such as air travel, hotel accommodations, and entertainment.

However, there are concerns that third-quarter economic growth could be curbed if the Covid-19 delta variant spreads.

As a result, Bank of America Securities has reduced its GDP growth estimate for the third quarter to 4.5% from 7.0%. Economists at Goldman Sachs (NYSE: GS) last week reduced their growth estimates for the third quarter to 5.5% from a 9% rate.

Overall, economists expect growth of around 7% this year, which is the strongest performance since 1984.